Benefits of International Bonds

Just as you can buy bonds from the U.S. government and U.S. companies, you can purchase bonds issued by governments and companies overseas.

• Bond Investment Opportunities Abroad
• Foreign Bonds Can Enhance Return Potential
• Risks of Foreign Bond Investing
• Building Your International Bond Portfolio

Today, foreign bond markets represent over 60% of the available fixed income investment opportunities worldwide, including bond issues in emerging economies and nongovernment entities, such as European corporations.

Because interest rate fluctuations may differ from country to country, international bonds are another way to balance downturns in the U.S. bond market.

Adding international bonds to your portfolio lets you invest in some of the world’s best-performing bond markets.

Although the U.S. bond market has been generally attractive for investors, it was the top-performing market only twice in the last 15 years. Adding foreign bonds to a U.S. fixed income portfolio increases the chance that a portion of your assets will be exposed to the best-performing markets.

Moreover, foreign bonds may help diversify your currency exposure and help protect your assets against a long-term secular decline in the U.S. dollar. Note that diversification cannot assure a profit or protect against loss in a declining market.

Click here to see the historical performance patterns between foreign and domestic bonds (the height of the bars shows the percentage by which foreign bonds surpassed or lagged U.S. bonds).

Like U.S. bonds, foreign bonds are subject to credit risk and interest rate risk. Bonds from emerging markets are vulnerable to political and economic instability as well. They’re also exposed to a risk that is unique to international investing—the volatility of currency exchange rates.

As the U.S. dollar strengthens and weakens relative to foreign currencies, the value of your bond investments will fall and rise. Although there are ways to help reduce currency risk, it cannot be eliminated entirely. As a result, the share price of an international bond fund may fluctuate more than a fund investing solely in U.S. bonds.

This chart compares the historical returns and risk of an internationally diversified bond portfolio with a portfolio invested exclusively in U.S. bonds.

T. Rowe Price can help you understand the nuances of foreign bonds and develop a sound investment strategy that allows you to pursue the full potential of global investing.